Everything you need to know about the new round of tax reform commencing 2024

The Croatian government has presented a proposal for a new round of tax reforms. One of the goals of this reform is to increase net wages for workers. Other novelties are:

1. Corporate profit tax

• Small inventory value will be increased from EUR 464.53 to EUR 650. This is important as small inventory write-off is fully tax deductible.
• Withholding tax on market research services and business advisory services will be abolished.
• Withholding tax imposed on divided payments to entrepreneurs from the European Economic Area (Norway, Iceland, Liechtenstein) will be abolished.
• The withholding tax rate for non-cooperative jurisdictions for tax purposes will be increased from 20% to 25%. The list of non-cooperative jurisdictions for tax purposes is updated on a regular basis.
• Payment deadline for Corporate Profit Tax will be 30 April, regardless of the date of submission of the Corporate Profit Tax Return.
• A tax-deductible donation in the amount exceeding 2% of the previous year's revenue is planned.

2. Value Added Tax (“VAT”)

• The taxpayer will be entitled to a VAT refund in the event that collection of receivables from customers (partly or fully) is not feasible within a one-year period.
• The threshold for VAT registration will be increased to EUR 40,000 (current threshold is EUR 39.816,84)

3. Personal income tax

• City surtax will be abolished as of 1 January 2024.
• Municipalities and cities will determine Personal Income Tax rates according to new ranges: the current lower income tax rate (20%) will be adjusted from 15% to 23.6%, and the higher rate (30%) from 25% up to 35.4%.
• The basic personal allowance will be in the amount of EUR 560 (current basic personal allowance amount to EUR 530.90).
• Absolute personal allowance amounts for dependent family members will be increased by applying coefficient on basic personal allowance.
• The threshold for higher Personal Income Tax rate of 30% will be increased from EUR 47.780 to EUR 50.400.
• The calculation base for I. pillar pension insurance will be reduced. For gross salaries up to EUR 700, the fixed allowance will amount to EUR 300, and for salaries from EUR 700.01 to EUR 1300 the allowance will be gradually reduced.
• Tips will be non-taxable up to the amount of EUR 3.360 per year/EUR 560 per month. Tips exceeding the non-taxable level will be taxed as so-called final or other income at the rate of 20%.
• The deadline for payment of Personal Income Tax will be 28 February, regardless of the date of submission of Personal Income Tax Return.
• The tax treatment of employee share plans (in Ltds) will be equalized with the tax treatment of the employee stock plans (in joint stock companies) i.e., employee share plan income will be treated as capital income.

4. Other

• Tax on vacation homes will be increased from current range of 0.66 EUR/m² to 1.99 EUR/m² to 0.60 EUR/m² to 5.00 EUR/m².